Ecuador Plays the Markets

Jun 1, 2007

Ecuador continues to beguile bondholders, referring to the debt as illegitimate and illegal, yet still keeping up with the coupons. A messy restructuring looms.

Despite the threat of default still hanging heavy, investors
in Ecuador's debt are sticking with the wayward sovereign
because of high returns. Their patience may soon run out as the
government fails to make a consistent case for repayment. Since
mid-February, when finance minister Ricardo Patiño said
Ecuador would not make a $130 million payment on its 2030
globals, the government has been playing a game of chicken with
international investors.

Ecuador did eventually pay up, since the administration
admitted it had cash on hand. But it may not cover the next
coupon if servicing the $16.9 billion debt means neglecting
social programs at home. There was little noise around a $30.8
million coupon due mid-June on the 2015 bonds, but there could
certainly be another round of volatility in August, when
Ecuador must pay another $135 million on the 2030.